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Gold/Mining/Energy : CPN: Calpine Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (261)	2/1/2002 9:27:54 AM
From: Winkman777	Read Replies (2) \| Respond to of 555

GS on CPN this am: * LIQUIDITY SITUATION APPEARS UNDER CONTROL: CPN shares have been pressured over the past several months by significant investor concerns regarding liquidity. The company appears to have addressed much of the near-term concern, and we estimate an excess liquidity position of $1.3 billion during 2002. We estimate $3.5 billion of total cash needs in 2002 and $4.8 billion of cash sources. * OUR ESTIMATES ASSUME MORE EQUITY: Management guidance for $1.70/share of earnings in 2002 assumes no incremental common equity. For CPN to achieve its targeted 65% adjusted debt/capitalization ratio (including a growing amount of leases), we believe the company may issue significant amounts of common stock over the next two years. Our estimates now incorporate $1.5 billion of incremental equity through 2003. The actual level of issuance should be dependent on cash raised from asset sales, input from credit rating agencies, and decisions regarding the pace of construction. In this equity price environment, we would rather see the company sell power plants or gas assets until the stock recovers to a more normal valuation level. * POTENTIAL TO GENERATE SIGNIFICANT CASH ONCE BUILDOUT IS COMPLETE: Unlike several of its competitors, CPN has made no firm commitment to stop or substantially pare down its development program. Without a commitment to stop building, we believe the market will continue to ignore the material cash flow potential in 2003 and 2004 (investors will assume the cash will be squandered unless told otherwise). If CPN simply stopped building post mid-2003, we estimate at least $1.95 billion of cash flow from operations based on contracted gross margins, modest improvement in spark spreads from unhedged baseload generation, EBITDA of $65,000/MW from peaking assets, and zero capitalized interest (cash interest of $800 million). After roughly $285 million of maintenance capital expenditures, free cash flow would total $1.6 billion. CPN could use this cash to rapidly de-lever the balance sheet and avoid having to issue as much equity. We estimate that $1.6 billion of annual debt retirement post 2003 would reduce debt to capitalization by at least an additional 3%-4%/year. * CALIFORNIA CONTRACT NEGOTIATIONS: Talks with the state of California on renegotiating power supply contracts appear to have slowed. While the timing for resolution is unclear, we continue to believe the major components of the restructuring will include shortening the terms of the baseload contracts (hurting shareholders from a present value perspective but not an annual cash flow or earnings perspective over the next 5+ years), elimination of the peaking contract, and new language that prevents any party from contesting the revised contracts in court. We would view this outcome as an overall negative, but think a similar result would boost the share price from current depressed levels. Table A: CPN Liquidity Position Appears Adequate (millions) 2002E 2003E Operating cash flow 1,142 1,832 Maintenance capital exp. (166) (182) E&P capital exp. (100) (100) Construction costs (3,122) (736) Lease payments (330) (330) Debt maturities (98) (616) Zero coupon maturity (819) 0 Cash requirement (3,493) (131) Cash on balance sheet 1,800 Revolvers 875 CA peaker sale/leaseback 500 Other sale/leaseback 825 Asset sales 150 150 Receivable financing 175 175 Miscellaneous 500 Cash sources 4,825 >325 Net excess cash 1,332 >194 Adjusted debt/capitalization 74% 66%

To: Raymond Duray who wrote (261)	2/1/2002 4:45:48 PM
From: Daniel G. DeBusschere	Read Replies (1) \| Respond to of 555

It is perfectly possible for two parties to renegotiate a legal and binding contract with revised terms that benefit both parties. If CPN needs cash or credit rating, there are things the state of California has that are non cash in nature but would provide valuable consideration to CPN in return for reduced pricing. This is only a for example - all I know is Cartwright will discuss anything with the state and continue to maintain his credibility while not giving away the farm without fair and equitable consideration. And furthermore, I believe that everyone in a policy position at the state believes this also. The big guns will be turned on DUK MIR DYN and what's left of ENE.